California's Proposition 13 Under Renewed Scrutiny for Intergenerational Wealth Disparities

California's landmark property tax law, Proposition 13, continues to be a focal point of debate, particularly regarding its long-term effects on intergenerational wealth and housing affordability. Passed in 1978, the initiative has been lauded for providing tax stability but is increasingly criticized for contributing to economic disparities between generations. Social media commentary, such as a recent tweet from Mike Solana, highlights this sentiment, stating, "in no other state, via no other policy, is the boomer's vampirism of the younger generations more apparent than california property tax law."

Proposition 13 established a 1% cap on property tax rates and limited annual increases in assessed value to a maximum of 2%, with properties only reassessed to market value upon sale or new construction. This mechanism has allowed long-term homeowners, many of whom are older generations, to maintain significantly lower property tax bills compared to newer buyers. The original intent was to protect homeowners from rapidly rising property values.

Further exacerbating intergenerational wealth transfer, Propositions 58 (1986) and 193 (1996) allowed parents and grandparents to transfer their primary residences to children or grandchildren without reassessment. This provision enabled families to pass down properties with decades-old, low tax bases, a significant financial advantage in California's high-value real estate market. Critics argue this created an unfair system where inherited wealth was protected from market-rate taxation.

However, Proposition 19, approved by voters in 2020 and effective February 2021, narrowed these intergenerational transfer rules. Under the new law, heirs must now use the inherited property as their primary residence to retain a portion of the low tax base, and even then, the exclusion is capped, potentially leading to a tax increase if the market value significantly exceeds the existing tax base. This change aimed to address some of the criticisms regarding inherited property tax breaks.

Despite these adjustments, studies, including a 2022 report titled "Unjust Legacy," continue to link Proposition 13 to a widening wealth gap, a severe housing shortage, and historical underfunding of public schools. The law is seen by some as incentivizing long-term ownership at the expense of market fluidity and equitable access for younger generations. Conversely, supporters emphasize that Proposition 13 provides crucial financial predictability for homeowners, especially those on fixed incomes, preventing them from being priced out of their homes by escalating property taxes.